Nike Plans More Job Cuts as China Sales Slide
Nike is intensifying its restructuring efforts under CEO Elliott Hill as challenges in China escalate, revealing a strategy to reduce additional jobs and reorganise its global business divisions following a forecast of an unexpectedly significant decline in full-year revenue. The subdued forecast on Thursday highlighted that Nike’s difficulties are expected to continue for at least several more quarters – particularly in China, where sales declined 26% on a constant-currency basis in the first quarter – contributing to investor apprehension regarding the speed of Hill’s turnaround. Its shares declined by 8.5% in after-hours trading. The company has been striving to stimulate growth during the initial two years of Hill’s leadership by concentrating on essential sports like running and by re-establishing connections with wholesale retailers. Analysts indicate that the concerns are primarily due to an insufficient introduction of new and engaging products, resulting in an increase in promotions and discounts. “Our Nike performance business is not yet large enough to offset the pressure we’re seeing in Nike sportswear, Jordan brand, and Greater China,” Hill said on a post-earnings call. Reviving those weak areas of Nike’s business “will take time,” he said, pointing to a deliberate reduction in the volume of Jordan retro launches.
The company, which also missed analysts’ expectations for first-quarter revenue, unveiled changes to its operating model, including job cuts and a move to three geographic regions – Americas, Asia Pacific and Greater China, and EMEA – instead of four. It intends to establish a new campus in India “with strong capabilities and access to talent.” Nike stated that the company is currently unable to determine the number of positions that will be eliminated as part of the restructuring process. It is set to commence notifications to employees in 2027. The program, building on previous rounds of layoffs, including one announced earlier this year, is expected to deliver approximately $2.5 billion in savings through fiscal 2031, with the majority anticipated to be realised in fiscal years 2029 and 2030. Nike anticipates a decline in its revenue in the high single digits for fiscal 2027. Analysts project a decline of approximately 2% in full-year revenue, based on data gathered by LSEG.
“There is nothing inherently wrong with the (restructuring) plans, but they do suggest that Nike’s current model is not really fit for purpose, which in turn raises the question of why these changes were not made sooner,” said Neil Saunders. China, historically a profit driver for Nike, has exhibited notable weakness in recent quarters as international competitors and domestic sportswear brands gain momentum. Investors continue to concentrate on potential indicators of enhancement, which analysts suggest will largely depend on local product innovation. Sales in China have declined for nine consecutive quarters, with the pace of the slowdown intensifying during the reported period. The region constitutes approximately 15% of Nike’s annual revenue, positioning it as the company’s third-largest market following North America and the Europe, Middle East, and Africa region. The company recently announced that beginning in January, it will withdraw online sales rights from several of its largest retail partners in China-a significant gamble that aims to restore its fortunes through enhanced control over pricing and distribution.
However, the digital cleanup is expected to require “multiple seasons,” Hill cautioned on Thursday, noting that short-term revenue and profitability in China will be adversely affected. Analysts have raised concerns regarding the sudden measures, which, while potentially effective in mitigating excessive discounting for Nike, may not necessarily persuade Chinese consumers of their desire for Nike’s offerings. “Nike does not have a channel problem in China, but rather a product problem,” analyst Laurent Vasilescu has said in a research note, adding that he was surprised by the company’s short timeframe to shut down online wholesale in China. Sales in North America, Nike’s largest market, increased by 2% on a constant-currency basis, indicating a degree of resilience in the first quarter. Nike’s performance business, specifically, contributed to the growth, benefiting from the World Cup, Hill stated. Compounding the company’s difficulties, French football star Kylian Mbappe terminated a two-decade-long collaboration with Nike in September, opting instead to align with Swiss-based competitor On.
Nike’s quarterly sales declined approximately 4% to $11.21 billion in the first quarter, falling short of analysts’ average estimate of $11.32 billion. Its gross margin, however, increased by 60 basis points to 42.8% in the quarter ending August 31, supported by a reduction in warehousing and logistics expenses. Hill indicated that Nike plans to revise its targets throughout the fiscal year, starting in November, as it navigates the restructuring plan. The company had withdrawn annual forecasts in October 2024 to provide the new CEO Hill with some flexibility to assess its business. S&P Dow Jones Indices removed Nike from the S&P 100 in September as part of a quarterly rebalancing after 18 years in the index of blue-chip companies.
